In federal criminal investigations, corporate health care providers have faced a Department of Justice increasingly focused on individuals, one that has limited or foreclosed cooperation credit for corporations not providing complete information on all individual involvement. At a conference in late November, Deputy Attorney General Rod Rosenstein outlined a modification of these stringent guidelines, to some extent for criminal prosecutions cases but more significantly for civil cases.

The 2015 Yates Memorandum established DOJ’s policy on individual accountability for corporate wrongdoing. This policy provided that corporations must provide all relevant facts about individuals to be eligible for any cooperation credit; criminal and civil investigations should focus on individuals from inception; no corporate resolution will provide protection from criminal or civil liability for any individuals; and considerations for civil suits against individuals should go beyond ability to pay, stressing deterrence and accountability.

Rosenstein first highlighted the consistencies of the new approach with the Yates Memorandum, as pursuing individuals responsible for wrongdoing is still a top DOJ priority. Any company seeking cooperation credit must identify all individuals substantially involved in or responsible for the criminal conduct. However, “investigations should not be delayed merely to collect information about individuals whose involvement was not substantial, and who are not likely to be prosecuted.” In criminal cases, this will allow cooperation credit without identifying every person involved, as long as the company discloses individuals who played significant roles or who authorized the misconduct.

Rosenstein said the changes were driven in large part by DOJ’s affirmative civil enforcement cases, where the changes are more substantial. The primary goal of these cases is to recover money, and DOJ found the Yates Memorandum’s “all or nothing” approach to cooperation counterproductive in civil cases. “When criminal liability is not at issue, our attorneys need flexibility to accept settlements that remedy the harm and deter future violations, so they can move on to other cases. … Our civil litigators simply cannot take the time to pursue civil cases against every individual employee who may be liable for misconduct.”

The new policy gives DOJ civil attorneys the discretion to offer some credit even if a company does not qualify for the maximum credit that comes with identifying every individual substantially involved in or responsible for the misconduct, as long as the company meaningfully assists the government’s investigation and does not conceal wrongdoing. DOJ civil lawyers can negotiate civil releases for individuals who do not warrant additional investigation and, importantly, can consider an individual’s ability to pay in deciding whether to pursue a civil judgment. Rosenstein said these “commonsense reforms” would return to DOJ civil attorneys the discretion they previously exercised in civil cases, to “use their resources most efficiently to achieve their enforcement mission.”

The practical implications of this change will play out over time. Rosenstein’s language suggests that a significant dividing line will be whether individual U.S. Attorney’s Offices view the conduct at issue as a joint criminal-civil matter or as a civil matter without a parallel criminal case. In the former, the only change may be an understanding that the company may be able to streamline the number of people that are the focus of investigation and disclosure. In a purely civil investigation or case, however, Rosenstein’s language indicates significant discretion will be given to DOJ civil attorneys to work out practical settlements that aim towards monetary recoveries for the government and victims, as well as an efficient use of resources to maximize recovery across all cases. In at least the purely civil cases, Rosenstein’s comments offer significant arguments to defense counsel to propose and advocate the practical resolution of government investigations and cases.

As New Yorkers are preparing for Thanksgiving and the official start to the holiday season (although some could argue it started a month ago), required Medicaid providers should also be reviewing their Compliance Programs in preparation to submit their Annual Provider Compliance Program Certification to the New York State Office of the Medicaid Inspector General (“OMIG”). Required providers must submit a certification at the time of their enrollment and each December thereafter.

As defined by Social Services Law Section 363-d (“Section 363-d”) and Part 521 of Title 18 of the New York Code of Rules and Regulations (“Part 521”), required providers are considered any provider that can answer “Yes” to one of the following questions and therefore must implement a comprehensive Compliance Program:

Is the provider organization subject to Article 28 or Article 36 of the NYS Public Health Law?

Is the provider organization subject to Article 16 or Article 31 of the NYS Mental Hygiene Law?

Does the provider organization claim or order, or can be reasonably expected to claim or order, Medicaid services or supplies of at least $500,000 in any consecutive 12-month period?

Does the provider organization receive Medicaid payments, or can be reasonably expected to receive payments, either directly or indirectly, of at least $500,000 in any consecutive 12-month period?

Does the provider organization submit Medicaid claims of at least $500,000 in any consecutive 12-month period on behalf of another person or persons?

There are two important concepts to be aware of when answering these questions. First, as defined by the OMIG, Indirect Medicaid Reimbursement is any payment that a provider receives for the delivery of Medicaid care, services, or supplies that comes from a source other than the State of New York. An example of this is when a provider provides covered services to a Medicaid beneficiary who is enrolled in a Medicaid Managed Care Plan, any payment from the Managed Care Organization is considered an indirect payment.

The second important concept is that the OMIG considers any consecutive 12-month period to be exactly that, any twelve consecutive months. This determination should not be considered solely on a calendar year. For example, if a provider established her practice on April 1, 2018 and will not reach $500,000 in either claims or payments by December 31, 2018 but can reasonably expect to hit that mark by March 2019, then that provider should have a Compliance Program in place and be prepared to certify to its implementation by December 31, 2018.

To assist providers, the OMIG’s website identifies seven compliance areas that a provider’s Compliance Program must apply to, as well as eight elements that should be included in all Compliance Programs, regardless of provider type.

The Seven Compliance Areas are:

Billings;

Payments;

Medical necessity and quality of care;

Governance;

Mandatory reporting;

Credentialing; and

Other risk areas that are or should with due diligence be identified by the provider.

The Eight Elements required in every Compliance Program are:

Element 1: Establish written policies and procedures that clearly describe and implement compliance expectations, as well as provide guidance to employees and others on dealing with potential compliance issues. The written policies and procedures must also identify how to communicate compliance issues to appropriate compliance personnel and describe how potential compliance problems are investigated and resolved.

Element 2: Designate a Compliance Officer who is responsible for the day-to-day operation of the Compliance Program.

Element 3: Establish an effective training and education program for all affected employees and persons associated with the provider, including executives and governing body members (“affected persons”).

Element 5: Establish disciplinary policies that are fairly and firmly enforced to encourage good faith participation in the Compliance Program by all affected persons. The policies must include clear expectations for the reporting or and assistance in resolving compliance issues. The policies must also include defined sanctions for:

Element 6: Conduct routine compliance assessments for those risk areas specific to the individual provider type, including but not limited to self-audits. These self-audits can be conducted internally or a provider may choose to have an external party conduct the audit.

Element 7: Establish a system for responding to and investigating potential compliance problems as the Compliance Officer becomes aware of them, either by a report received from an affected person or as the result of an internal assessment. Compliance Program must also establish systems for the provider to report compliance issues the OMIG, as well as repay any related overpayments.

Element 8: Establish a policy of non-intimidation and non-retaliation for good faith participation in the Compliance Program, including but not limited to reporting potential issues, investigating issues, self-evaluations, audits and remedial actions, and reporting to appropriate officials as provided in sections 740 and 741 of the New York State Labor Law.

As mentioned above, each December, required providers must submit a Provider Compliance Program Certification, attesting that they have a Compliance Plan in place and that Compliance Plan satisfies each of the OMIG’s Eight Elements. If a provider is unable to unequivocally state that their plan meets these requirements then a certification should not be submitted and immediate steps must be taken to all necessary modifications to establish a satisfactory Compliance Plan. Any provider who submits a false certification may be subject to sanctions, including monetary fines or provider enrollment termination.

If you are unsure whether your Compliance Plan would satisfy the OMIG’s Eight Elements, or if you are a provider who believes you are required to implement a Compliance Plan and have not done so, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

Last week, in LeadingAge New York, Inc. v. Shah, the New York Court of Appeals addressed Department of Health regulations limiting executive compensation and administrative expenditures by healthcare providers receiving state funds. The Court upheld limits related to state funding, but struck down a limit that applied regardless of the source of funding.

In 2012, Governor Cuomo directed agencies providing state funding to service providers to regulate provider use of state funds for executive compensation and administrative costs. DOH responded with regulations restricting state-funded expenditures on administrative expenses and executive compensation for certain defined “covered providers.”

The regulations had two “hard caps,” one limiting administrative expenses to 15% of covered operating expenses paid with State funds, and one limiting the use of State funds for executive compensation to $199,000, absent a waiver. The regulations also had one “soft cap,” providing for penalties to a covered provider if executive compensation exceeded $199,000 from any source of funding, with specified exceptions concerning comparable provider compensation and board approval. Covered executives included those for whom salary and benefits were administrative expenses, and excluded clinical and program personnel.

The Court of Appeals grounded its decision in the separation of powers doctrine, which requires that “the Legislature make the critical policy decisions, while the executive branch’s responsibility is to implement those policies.” Chief Judge DiFiore looked to the Court’s prior decision in Boreali v. Axelrod for guidance in finding “the difficult-to-define line between administrative rule-making and legislative policy-making.”

The Court first reviewed the function of DOH, which manages state funds earmarked for public health, oversees the Medicaid program, and contracts with private entities. The Court said that DOH carries out these functions with the goal of ensuring that the limited public funding available be directed as efficiently as possible toward high-quality services.

The Court concluded that the hard cap regulations on both administrative expenses and executive compensation did not exceed DOH’s authority. The Legislature directed that DOH oversee the efficient expenditure of state health care funds. The hard caps are tied to the specific goal of efficiently directing state funds toward quality medical care for the public by limiting the extent to which state funds may be used for non-service-related salaries and disproportionately high administrative budgets. The Court found the hard cap regulations to be directly tied to the Legislative policy goal without subverting it in favor of unrelated public policy interests.

In contrast, the Court struck down the soft cap regulation, which restricted executive compensation over $199,000 regardless of funding source, because it represented “an unauthorized excursion by DOH beyond the parameters set by the Legislature.” The Court found that while the hard cap regulations capped the use of public funding, the soft cap imposed an overall cap on executive compensation, regardless of the funding source. “The soft cap thus pursues a policy consideration – limited executive compensation – that is not clearly connected to the objectives outlined by the Legislature but represents a distinct ‘value judgment.’” The soft cap restriction on executive compensation was not “sufficiently tethered” to the enabling legislation which largely concerned state funding. The Court concluded that the soft cap regulation exceeded DOH’s administrative authority as it envisioned the additional goal of limiting executive compensation as a matter of public policy.

All members of the Court of Appeals agreed that the hard cap on administrative expenditures was permissible, but the dissenting Judges differed on executive compensation. Judge Garcia would have stricken both hard and soft caps on executive compensation, because they represented a “policy choice about reasonable compensation aimed at influencing corporate behavior,” which is “law-making beyond DOH’s regulatory authority.” In contrast, Judge Wilson would had found both limits to be permissible. He criticized the majority’s reliance on Boreali, and saw the proper analysis to be whether the regulation exceeded the executive power. He would have used that rationale to uphold the hard cap on executive compensation, and also would have found the soft cap permissible because it advance the statutory goals of preventing providers from circumventing the hard cap and advising providers the State may allocate taxpayer funds away from undesireable or inefficient vendors and toward competitors who provide superior value.

At least where State funds are at issue, LeadingAge provides the Governor and executive agencies with broad authority to police and restrict the use of State funding.

New York State does not require hospitals to insure medical malpractice claims, either through the purchase of commercial medical malpractice insurance or the establishment of an adequately funded self-insurance program. New York has never required such insurance. There are many hospitals which did not insure medical malpractice claims in the past, and a number that currently do not.

Historically, the lack of insurance was often a matter of choice. A number of community hospitals in the New York City area did not insure medical practice claims because they believed they would always be able to pay claims out of operations. Others chose not to insure because they believed the lack of insurance improved their negotiating position with medical malpractice plaintiffs. The hospitals would warn plaintiffs to settle their claims for what the hospitals considered reasonable amounts. If they did not, the hospitals would tell them that they would not be able to pay their claims and might have to resort to chapter 11 bankruptcy, where their malpractice claims would be general unsecured claims and receive pennies on the dollar.

Attending physicians typically have malpractice insurance that covers claims against them individually for services they perform at the hospitals where they practice. But physicians who are full-time employees of hospitals often do not have any individual malpractice insurance coverage; rather, they are dependent on their employers for it.

Some hospitals, after “going bare” for a period of time and experiencing a large number of malpractice claims, are unable to purchase commercial medical malpractice insurance. It is unclear whether they could have taken advantage of state programs established to enable them to purchase insurance for themselves and/or their physicians. Although some of these hospitals set up self-insured programs, the programs were often inadequately funded. When the hospitals experienced financial difficulties, the self-insurance reserves would often be used, in whole or in substantial part, to fund operating expenses.

The lack of medical malpractice insurance or adequate self-insurance, needless to say, can be tragic for patients. Patients may well be uninformed when admitted to a hospital that it is without medical malpractice insurance coverage or a sufficiently funded self-insurance program to fully compensate them if they are negligently injured during treatment or surgery. Narratives of serious injuries caused by medical malpractice make for difficult reading, and an even worse ending if they cannot recover the damages to which they are entitled.

Lack of malpractice insurance further raises issues for trade creditors, service providers and other unsecured creditors of the hospitals if the hospitals experience financial difficulties and file chapter 11. Serious uninsured medical malpractice claims and large numbers of such claims, when added to the claims of other creditors, can greatly reduce the recovery of both malpractice claimants and business creditors in the chapter 11 cases of these hospitals.

Earlier this Summer, the Court of Appeals overturned the Appellate Division Third Department’s (the “Third Department”) unanimous decision in The Matter of Anonymous v.Molik, where it ruled that the New York State Justice Center for the Protection of People with Special Needs (“Justice Center”) exceeded its authority by substantiating a report against a facility or provider agency based upon a “concurrent finding” of neglect.[i] With its decision, the Court of Appeals has not only clarified the Justice Center’s scope of authority, but also reopened the floodgates to a large number of investigations and appeals that have been existing in a state of limbo since the Third Department’s June 2, 2016 decision.[ii]

Pursuant to Executive Law §§ 551-562 and Social Services Law §§ 488-497, the Justice Center was established in 2013 to protect “vulnerable persons who receive care from New York State’s human services agencies.”[iii] It was created to protect all vulnerable persons, or those “who, due to physical or cognitive disabilities, or the need for services or placement, [are] receiving services from a facility or provider agency.”[iv]

All reportable incidents, including any allegation of neglect,[v] must be reported by a facility to the Statewide Vulnerable Persons’ Central Register (“VPCR”)[vi], whereby the Justice Center is mandated to investigate the allegation(s) and submit its findings to the VPCR.[vii] The Justice Center’s findings are “based on a preponderance of the evidence and indicate whether the alleged abuse or neglect is substantiated in that it is determined the incident occurred and the subject of the report, facility or provider agency are responsible; or the allegation is found to be unsubstantiated because the event did not occur, or the subject of the report was found not responsible.”[viii] Additionally, the Justice Center may make “a concurrent finding . . . that a systemic problem [at the provider agency or facility] caused or contributed to the occurrence of the incident.”[ix]

In Molik, a male resident engaged in inappropriate sexual conduct with a female resident after two staff members momentarily left a common room at the Petitioner’s facility.[x] This assault was the third incident in a six month period, with the previous two assaults being known to the Petitioner.[xi] The Justice Center investigated the incident, but did not substantiate a report of neglect against the two individuals because “there were no policies or requirements in place prohibiting staff from leaving the room unattended while residents were gathered there.”[xii] However, since the male resident had previously engaged in similar conduct, the Justice Center substantiated a concurrent finding of neglect against the Petitioner, the operator of the residential facility, “for failing to implement clear staff supervision protocols and for failing to modify [the male resident’s] care plan to increase his level of supervision after the first two attacks.”[xiii]

The Petitioner requested that the Justice Center amend its finding to unsubstantiated, which was denied, leading to the Petitioner’s Article 78 action where it received unanimous support from the Third Department.[xiv] In its decision, the Third Department overturned the Justice Center’s concurrent finding, stating that it did not have to “defer to the Justice Center’s interpretation of the statutory provisions in question . . . [but rather defer to the] pure statutory interpretation dependent only on accurate apprehension of legislative intent.”[xv] “[T]he only circumstance under which the Justice Center could substantiate a report of neglect against a facility or provider agency is where an incident of neglect has occurred but the subject cannot be identified — a situation that is plainly not present here.”[xvi] The Third Department continued by saying, while the Justice Center does, in fact, have the authority to make a concurrent finding, “the only concurrent finding that may be made is that a systemic problem caused or contributed to the occurrence of the incident.”[xvii] Accordingly, since the controlling statute did not provide the Justice Center with the clear ability to categorize a concurrent finding it necessarily followed that such a finding could not constitute neglect on the part of a provider agency.[xviii]

The Court of Appeals, however, did not share in the Third Department’s view, stating that courts may look beyond the literal text of a statute when “the plain intent and purpose of the statute would otherwise be defeated.”[xix] Consequently, the Court viewed the Petitioner’s, and the Third Department’s, narrow interpretation of the law as “leav[ing] the Justice Center powerless to address many systemic issues, defeating the purpose of the Act and preventing the Justice Center from protecting vulnerable persons where it is most critical to do so.”[xx] The Court, in light of the particular underlying events in Molik, ruled that to uphold this construction “would perversely allow this dangerous cycle to continue: employee conduct could not be substantiated because it does not violate facility policies, but facility policies would remain ineffective because the Justice Center lacks authority to implement change.”[xxi]

In her dissenting opinion, Judge Rivera stated that she agreed with the majority that “[i]t would lead to absurd results if [N.Y. Soc. Serv. Law § 493(3)(a) were interpreted] to permit a facility or provider agency to be found responsible in those situations where an incident occurs and no subject can be identified, but not where an identified subject is found not responsible for a confirmed incident of abuse or neglect.”[xxii] However, Judge Rivera points out that a ‘concurrent’ finding should be viewed as an ‘adjunct’, requiring that an initial finding of neglect must be made before a provider agency could be found to have concurrently committed neglect, even if the initial subject is ultimately found not responsible.[xxiii] In Molik, as reasoned by Judge Rivera, the initial step of establishing a finding of abuse or neglect was never reached because the allegation of neglect against the two identified subjects was declared unsubstantiated; therefore, a ‘concurrent’ finding could not be made.[xxiv]

In a post-Molik world, it is imperative that all provider agencies subject to Justice Center oversight review their internal policies, procedures, and processes, understanding that they too are now clearly within the Justice Center’s reach. Provider agencies should evaluate previous incidents that occurred within the facility to determine whether the necessary corrective actions have been taken or if further steps are needed. Furthermore, staff training curriculum should be reevaluated to determine whether opportunities for improvement exist.

If you have any questions or would like additional information regarding the Justice Center, or would be interested in assistance reviewing, developing or revising your policies, processes, and training programs, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com

Just over one year ago, I wrote about the Department of Health and Human Service’s (“HHS”) $105 million award to support 1,333 federally qualified health centers (“Health Centers”) across the United States improve the quality of comprehensive care provided to patients. It seems like déjà vu, as it was announced last month that HHS set aside $125 million in quality improvement grants to be allocated among 1,352 Health Centers. A list of recipients can be found here.

Health Centers receive funding through the Health Resources and Services Administration (“HRSA”), a branch of the federal government with a primary purpose of delivering comprehensive healthcare to patients who cannot otherwise afford such care. Treatments offered at Health Centers, include, without limitation, physician services, homebound visits by nurses in geographic locations where home health agencies are sparse, and clinical psychology services. The overarching goals set by HRSA with respect to Health Centers are to:

Make available high quality healthcare treatments and ancillary services, including education and transportation to facilities;

Offer care at affordable rates and charge patients in accordance with a practical scale;

Have community stakeholders serve on the governing boards to communicate the specific needs of the locality; and

Create a patient-centered foundation to address the diverse needs of the medically underserved.

In accordance with those goals, the grants are designed to improve Health Centers. Specifically, the funds will be used for “[e]xpanding access to comprehensive care, improving care quality and outcomes, increasing comprehensive care delivery in a cost-effective way, addressing health disparities, advancing the use of health information technology, and delivering patient-centered care.”

Speaking on the new grants and reflecting on the preceding year, HRSA Administrator George Sigounas, MS, Ph.D., said “[n]early all HRSA-funded health centers demonstrated improvement in one or more clinical quality measures from the year prior, and these funds will support health centers’ work to improve the quality of care they deliver in their communities around the country.”

As healthcare costs continue to rise in many parts of the country, eligible patients have an alternative route to obtain affordable healthcare without the burdens associated with visiting the local hospital. Health Centers are a bright spot in an otherwise gloomy healthcare system.

This post is written in connection with my colleague Vanessa Bongiorno’s recent post, where she eloquently summarized the New York Department of Health’s (“DOH”) findings of the multi-agency study on the impact of regulated adult-use marijuana in New York.

In the report, DOH found that even though marijuana use does contain risks, there are benefits associated with implementing a regulated adult-use marijuana program, including positive impacts on New York’s criminal justice system and an alternative to opioid use, which has long impacted so many New Yorkers and their families. The DOH report concluded with, among other things, a recommendation that New York establishes a workgroup of subject matter professionals with relevant public health experience to debate the details of a regulated marijuana program and offer solutions consistent with reducing harm and educating the public.

Governor Andrew M. Cuomo accepted the recommendation and recently announced the creation of a workgroup to help draft legislation for regulated adult-use marijuana, which will be overseen by Alphonso David, an advisor to the Governor. The workgroup consists of professors of major New York educational institutions, law enforcement representatives, governmental stakeholders, and mental health experts, to name a few. A full list of workgroup members can be found here.

Speaking on the development, Governor Cuomo stated “[t]he next steps must be taken thoughtfully and deliberately. As we work to implement the report’s recommendation through legislation, we must thoroughly consider all aspects of a regulated marijuana program, including its impact on public health, criminal justice and State revenue, and mitigate any potential risks associated with it.”

It is abundantly clear that New York is serious about adopting a regulated marijuana program. While the details of such program are beginning to be hashed out, New York’s long anticipated debate over regulated adult-use marijuana appears to be coming to a resolution.

This past July 26, 2018 was the 28th anniversary of the Americans with Disabilities Act (“ADA”), landmark civil rights legislation designed to protect the rights of individuals with disabilities. Specifically, the ADA prohibits discrimination on the basis of disability in employment, state and local government, public accommodations, commercial facilities, transportation and telecommunications. It protects anyone with a “disability”, defined as “a physical or mental impairment that substantially limits one or more major life activities,” which include but are not limited to “caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, and working.” This is clearly a broad list – and consequently, the ADA impacts many individuals and organizations on almost a daily basis.

ADA requirements impact the healthcare sector no less than any other sector, and more than most. In particular, the 2002 Supreme Court case of Olmstead v. L.C., 527 U.S. 581 (1999), held that the ADA requires individuals with disabilities receiving services from the state to be served in the most integrated setting appropriate to their needs –meaning in practice that they must be served in community settings rather than institutions if that (1) is appropriate, (2) is not opposed by the recipient, and (3) can be reasonably accommodated taking into account the resources available to the state and the needs of others. That case specifically addresses individuals with mental disabilities residing in a psychiatric hospital, but courts subsequently extended the principle to individuals with other disabilities in other settings, and has helped to drive healthcare policy nationwide, particularly in the long term care space.

To coordinate the implementation of the Olmstead decision, in late 2002 New York State established the Most Integrated Setting Coordinating Council, an interagency council comprised of representative of various state agencies that attempted to address the Olmstead mandate in a coordinated way. Governor Cuomo expanded on that effort in 2012, when he issued an Executive Order establishing the Olmstead Plan Development and Implementation Cabinet, a similar collection of agency representatives charged with issuing recommendations on how best to implement the Olmstead mandate. The Cabinet issued a report in October 2013 that identified four areas of focus: (1) the need for strategies to address specific populations in unnecessarily segregated settings, including psychiatric centers, developmental centers, intermediate care facilities, sheltered workshops and nursing homes; (2) the general need to increase opportunities for people with disabilities to live integrated lives in the community; (3) the need to develop consistent cross-systems assessments and outcome measurements regarding how New York meets the needs and choices of people with disabilities in the most integrated setting; and (4) the need for strong Olmstead accountability measure. This report informed many of the subsequent reforms implemented by Governor Cuomo in the health and human services space.

On July 26, 2018, the Governor expanded the State’s commitment to the ADA and furthered the State’s Olmstead compliance by announcing the first phase of the “Able New York” agenda, a series of regulatory initiatives designed to enhance the accessibility of a variety of state programs and services. This first phase focuses on the Department of Health (DOH), and includes a series of policy initiatives aimed at supporting community living for individuals with disabilities. Specifically, the Governor has charged DOH to take the following actions:

Dear Administrator Letter: DOH will issue a “Dear Administrator Letter” (DAL) to all nursing facilities reminding them of their obligations to provide assistance to any resident that wishes to return to the community. DALs are a form of subregulatory guidance used by DOH to set policy without issuing a formal regulation.

Immediate Need Program: DOH will issue new guidance to Local Divisions of Social Services regarding the immediate need program for authorizing personal care services. The Immediate Need Program, which was established pursuant to legislation enacted in 2015, is not a separate program so much as a set of procedures requiring expedited eligibility and assessment determinations for individuals who (1) have no informal caregivers, (2) are not receiving needed assistance from a home care services agency, (3) have no third party insurance or Medicare benefits available to pay for needed assistance, and (4) have no adaptive or specialized equipment or supplies that meet their need for assistance. In such cases, Medicaid eligibility must be determined within seven days. DOH has been instructed to intervene in counties that are not complying with the program.

MLTC Housing Disregard: DOH will provide education to nursing homes, adult homes, local governments, and Managed Long Term Care (MLTC) plans about the MLTC Housing Disregard, which provides nursing home residents who are discharged back to the community with additional housing allowance should they join a MLTC plan. The Housing Disregard was established in 2013, and allows individuals to retain a dollar amount per month for housing without jeopardizing their Medicaid eligibility. The amount varies by region. In order to be eligible for the disregard, a person must (1) be at least 18 years of age, (2) have been a resident of a nursing home for at least 30 days, (3) have had nursing home care paid by Medicaid; (4) require community-based care for more than 120 days; and (5) have a housing expense such as rent or mortgage.

In addition to the foregoing, DOH will also “explore” (but presumably not necessarily implement) the following measures:

Certification of Assessment & Discharge Education: DOH might require Medicaid-enrolled nursing homes to certify each year that they have (a) assessed all residents’ functional capacity; (b) asked residents about their interest in receiving information regarding returning to the community; and (c) provided sufficient preparation and orientation to residents to ensure safe and orderly discharge from the facility.

HCBS Evaluations as Part of Certificate of Need Review: DOH might require any new application for additional nursing home beds or change of ownership to include, as part of its business plan, an assessment of the home and community based services (HCBS) in the service area, a description of its current or planned linkages to such HCBS services, and how its admission policies will ensure that residents are placed in the most appropriate and least restrictive setting.

Discharge Rights Letter and Notice: DOH might require all nursing homes to inform residents and their families and representatives in writing of their discharge rights, including information on HCBS and community transition programs. DOH might also require all nursing homes to publicly post information regarding available resources and services that can assist residents in moving to the community, and explore additional ways to highlight discharge options. DOH may also engage the Long Term Care Ombudsman Program on this effort.

Nursing Home Discharge Incentive: DOH might incentivize nursing home discharges by developing a quality metric that rewards facilities that discharge long stay residents to the community, provided those residents are successfully maintained in the community for at least 90 days.

Thus, the new guidance to be issued by DOH to nursing homes and other long term care provider could be significant, particularly if it includes a new quality incentive for discharges. Even if DOH opts not to implement any of the proposed new initiatives, the obligations to be outlined in the new DAL could still impose significant new regulatory requirements on nursing home administrators.

We will continue to monitor the implementation of this phase of the Able New York agenda, as well as future phases. For additional information on this or other legislative or regulatory matters, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

The recent New York Court of Appeals decision in Stega v. New York Downtown Hospitalprovides strong support for defamation claims arising out of witness testimony in investigations and quasi-judicial hearings. In Stega, the Court held that statements made in administrative proceedings that allegedly defame a person are not absolutely immune where the person has no recourse to challenge the accusations.

The plaintiff, Dr. Jeanetta Stega, a medical scientist and employee of New York Downtown Hospital, was chair of the hospital’s Institutional Review Board (IRB). She assisted Dr. Leonard Farber in arranging a clinical trial of a compound Luminant Bio-Sciences had developed to treat patients with metastatic cancer, which included human subjects. Dr. Stega recused herself from the Downtown Hospital IRB decision approving the trial.

The clinical study went awry as conflicts developed between Dr. Farber and Luminant. Dr. Farber made several allegations against Dr. Stega, including that she had stolen Luminent study money from him, that she had taken funds that did not belong to her, and that the drug compound was toxic and unsafe for patients. Downtown Hospital accused plaintiff of taking funds that did not belong to her and engaging in a conflict of interest by seeking IRB approval when she was a member of the IRB board. Downtown Hospital terminated Dr. Stega after concluding that she had violated the hospital’s conflict of interest policy and improperly taken Luminent money.

Dr. Stega submitted a complaint to the FDA. FDA inspectors interviewed Dr. Stega as well as officials from Downtown Hospital. The FDA inspection report included statements from the Downtown Hospital Acting Chief Medical Officer, Dr. Stephen Friedman, that Dr. Stega was terminated because she channeled Luminent funds to a research group using her home address and added patients to the study that the IRB would not approve, and because the IRB and their approvals were tainted.

After becoming aware of the FDA inspection report, Dr. Stega commenced a defamation action against Downtown Hospital, Dr. Friedman, and others. Defendants contended that Dr. Friedman’s statements were protected by an absolute privilege because the FDA inspection was a quasi-judicial proceeding.

The Court of Appeals, in a decision by Judge Fahey, held that the statements were not protected by absolute privilege. The Court held that, for absolute immunity to apply in a quasi-judicial context, the process must make available a remedy for the allegedly defamed party to challenge the defamatory statements. The Court focused on the fact that Dr. Stega was not entitled to participate in the FDA’s review and therefore could not challenge Dr. Friedman’s accusations against her. As the FDA investigation process did not provide Dr. Stega with procedural safeguards to contest what was said against her, absolute privilege did not apply. In the Court’s words, “The absolute privilege against defamation applied to communications in certain administrative proceedings is not a license to destroy a person’s character by means of false, defamatory statements.”

Judges Rivera and Garcia dissented, arguing that whether an absolute privilege applies in a quasi-judicial proceeding depends on the nature of the proceedings rather than the status of the subject of the communication. Judge Rivera opined that the majority decision undermined the public policy of encouraging greater openness in communications with government officials. The dissenters would have applied absolute immunity, on the ground that the statements were made in a quasi-judicial proceeding, a federal investigation regarding clinical trials involving human subjects and treatment of life-threatening conditions. The interesting oral argument before the Court of Appeals can be found here.

For the question of whether absolute immunity applies, the Stega decision places the focus on the allegedly defamed person rather than the nature of the proceedings. Witnesses who are giving statements or testimony in administrative proceedings and investigations should be counseled to take care in what they say and how they say it, as absolute immunity may not protect them if their comments lead to a defamation claim.

In January 2018, during the Executive budget address, Governor Cuomo directed the Department of Health (DOH) to review the health, criminal justice and economic impacts of regulating recreational marijuana in New York. In doing so, he requested DOH to act in consultation with other NYS agencies and to evaluate the experience, consequences and effects of legalized marijuana in neighboring states and territories.Seven months later, on July 13, the DOH released their highly anticipated assessment and recommendations.The report follows DOH’s recent promulgation of emergency regulations that added opioid use as a qualifying condition for medical marijuana and allowing medical marijuana to be used as an alternative treatment for pain relief in lieu of opioids.Additionally, the Governor recently directed the Department of Financial Services to issue guidance to encourage NYS chartered banks and credit unions to consider establishing banking relationships with medical marijuana-related businesses in New York that are operating in full compliance with all applicable State laws and regulations, including the Compassionate Care Act.

DOH’s report reviews the current landscape of state laws surrounding marijuana usage in the United States: Twenty-nine states and Washington D.C. have adopted medical marijuana programs, and 8 states and Washington D.C. have legalized marijuana for regulated recreational use by adults.The report concedes the recent activities in surrounding states and Canada have prompted the need for New York to consider the legalization of marijuana thoughtfully and responsibly.The report examines how the prohibition of marijuana led to a significant number of arrests for possession of marijuana and caused adverse and disproportionate economic, health, and safety impacts for individuals with low incomes and communities of color.Additionally, the report highlights several studies that have illustrated reductions in opioid prescribing and overdose deaths with the availability of marijuana products.

While the report acknowledges marijuana use is not without its risks, it concludes that the benefits of an adult regulated marijuana program would have significant health, social justice and economic benefits that outweigh any potential negative impacts for New York.The report recommends harm reduction strategies and principles be incorporated into the regulated marijuana program to help ensure consumer and industry safety.For example, a regulated adult-use only marijuana program should prohibit use by youth (those under 21 years of age) and simultaneously implement strategies to reduce youth use of marijuana.Regulating marijuana would allow for laboratory testing, product labeling, guidance and consumer education at dispensaries.This would allow consumers to be better informed about the products they are purchasing, understand the dosage options, various ingestion methods, what products and techniques may work best for them, as well as understand potential adverse consequences and potential harms of marijuana use.An adult regulated marijuana program could also help promote marijuana as an effective alternative pain treatment to opioids.Additionally, a regulated marijuana program should create guidelines to ensure packaging is child proof and contains appropriate warning labels to avoid accidental consumption.

The report outlines the impact marijuana legalization would have on the criminal justice system.In 2010, the marijuana arrest rate in New York was the highest in the country and twice the national average.Unfortunately, despite equal marijuana use among racial groups, black individuals were nearly four times more likely than whites to be arrested for possession.Subject matter experts echoed similar sentiments to DOH and stated the most appropriate way to rectify this issue would be to legalize marijuana.Marijuana-related convictions have a lasting impact on individuals, their families and the communities where these individuals live.Individuals with a criminal record typically experience lifelong challenges with securing stable employment, housing and economic stability.The DOH report indicates if marijuana was regulated, there would be a reduction of expenditures related to enforcement, prosecution and punishment for illegal marijuana offenses.This would allow law enforcement to devote more of their time to community oriented policing and other more pressing focus areas.

The DOH study illustrates that NYS would be one of the largest regulated marijuana markets in the country and that there is great potential for tax revenue for the State.DOH stated this funding could be used to help provide financial support for other programs, such as public health, community reinvestment, education, transportation, research, law enforcement, workforce development, and employment initiatives.The report estimates there is projected to be 1,290,000 consumers in NY that would access regulated marijuana within the first year.Based on certain inputs, assumptions, and average retail prices for marijuana, the estimated revenue for the first year could be between $1.7 billion and $3.5 billion annually – based on the sale of 6.5-10.2 million ounces being sold at $270 – $340 per ounce.It should be noted, however that the average price of an ounce of marijuana in the United States, according to a recent Forbes article is around $247 an ounce.Thus, these projections are arguably inflated. Furthermore, depending on the retail tax rate that is ultimately imposed (the analysis used 7% and 15% for comparison purposes), NYS could receive between $248 million to upwards of $677 million in tax revenue annually.However, the higher the tax rate imposed, the more likely users will continue to resort to the black market to obtain marijuana.

The report acknowledges the implementation of a regulated marijuana program would require legislative and regulatory actions to appropriately address the diverse geographic needs throughout New York.NYS must determine what type of licenses to offer under the regulated marijuana program and whether or not vertical integration would be allowed.DOH recommends NYS limit the number of licenses available initially, and adopt a licensure model that is similar to Massachusetts, which prioritizes applicants for licensure based on providing equal opportunities for individuals who meet certain criteria (those living in areas of disproportionate impact, employment of residents in such areas, employment of people with drug-related criminal offender record that are otherwise employable, and ownership by persons of color).Additionally, NYS would need to develop regulations and requirements for each element of the supply chain, cultivation and production practices, laboratory guidance, packaging and tamper proofing of products, and how marijuana will be retailed.DOH recommends NYS place limits on the amount of THC allowed in marijuana, the types of products that may be offered for sale, and limit the maximum amount an individual may purchase to one ounce.

Regarding the taxation of regulated marijuana products, DOH recommends NYS begin with a low taxation rate, between 7% and 10%, to help encourage users to transition to the legalized market.The report also emphasized that the workforce needs for this emerging industry must be addressed as the program continues to be developed to ensure safe working conditions.

Lastly, the DOH report recommended NYS convene a workgroup of subject matter experts, with relevant public health expertise, to: (1) contemplate the nuances of a regulated marijuana program; (2) review existing legislation; and (3) make recommendations to the State that are consistent with the overarching goals of harm reduction and public education.

For additional information on this report or other legislative or regulatory matters, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.